Greece faces stormy waters in its bid to cut tax evasion

Demonstrators hold a huge banner that reads 'I wont pay the head-tax' in front of the Greek parliament on September 25.

Story highlights

Greece says it seized 555 yachts and collected $4.7bn in fines for tax evasion in 2010

The finance ministry estimates it is owed $56bn in uncollected taxes

CNN has been told how citizens pay a "tip" to tax officials to reduce the amount they pay

The Greek government says it seized 555 yachts last year in a clamp-down on tax evasion.

It is an astonishing statistic but just one of many eye-popping numbers coming from Greece as it tries to reform its economy and emerge from the debt crisis that is threatening the rest of Europe.

According to the Greek finance ministry, the yachts were taken because the privately-owned vessels were licensed for professional use in order to escape a tax.

In addition to the seizures, the ministry said it clawed back €3.4 billion ($4.7 billion) in fines for tax evasion in 2010, and in the first nine months of 2011 the tax receipt is €39 billion ($54 billion).

Greece certainly needs the money. Before the European deal to write down Greece's debt to 120% of economic output, figures from the European Commission put the country's projected debt for 2011 at nearly €353 billion ($488 billion).

The Greek government recognizes that tax evasion and the system of tax collection has been a long-term problem. The finance ministry estimates that it is owed €40 billion ($56 billion) in uncollected taxes going back decades, but now thought impossible to recover due to bankruptcies and deaths.

Greek MP Elena Panaritis, an economics expert who advises Prime Minister George Papandreou, recently described evasion as "rife," estimating that more than 30% of income taxes went uncollected.

"The real culprit is an institutionalized, broken system and inefficient management of the public sector and the overall revenue system," she wrote in The Globalist in May this year.

It is not just rich yacht owners who are cheating the system. Panaritis highlighted to CNN another dodge in which employers hire staff on one salary, declare a fraction, pay the employee the remainder in cash and avoid the full tax bill.

Other Greeks have described to CNN how citizens pay a "tip" to tax officials to reduce the amount they pay.

The government is trying to hit back. Panaritis says they have made "superhuman" efforts to reform Greece including introducing measures to tackle collusion between the public and the authorities -- something she describes as "controlling the controller."

"We are establishing controls not only to the citizen but also to the collector -- the public servant," said Panaritis.

She added that the government had created an independent tax authority, improved policing, harmonized accounting systems and introduced a special judge to deal with tax issues.

But Maria Koutroumpa, a young Greek woman who has found work as a market analyst in London, says the Greek attitude towards paying taxes is only one part of the problem. She says many Greeks blame successive governments for mismanaging the economy and the decision to allow Greece into the euro.

"No-one cared about the country's future. People don't trust officials," she said.

Panaritis, who worked for the World Bank and has specialist knowledge of public sector reform, accepts that there is a gulf in trust between the citizen and authority and says increased policing is not the whole answer.

She believes that a series of incentives and benefits such as cutting bureaucracy and encouraging entrepreneurs is the way out of the crisis.

"We must deregulate and simplify -- that's what we should be pushing for rather than more fiscal measures. Greece has natural resources, we have human capital," she said.

But reaction from one pressure group suggests that encouraging privatization will be a hard sell.

Calling itself Den Plirono, which translates as 'I won't pay,' the group was originally set up to protest about highways going over to the private sector and the subsequent imposition of road tolls.

But its opposition has spread to a string of extra taxes that were brought in during the summer's austerity measures.

Den Plirono says it is not associated with any political party, and it claims to be growing, with 10,000 members and 50 committees across Greece.

"We already pay high taxes," said Vasilis Sarantopoulos, a spokesman for the group. "Over the last few years, there has been an effort in Greece to give public and social goods to the private sector so it can exploit them and make a profit. The ones who don't pay taxes today are the big companies," he said.

Another group member, Christos Bavelis, says citizens simply cannot afford the austerity measures and wants to see government cut costs and corrupt officials sent to jail.

"People are afraid," he said. "They want to be legal but they don't want to pay for the crisis."

As members of the European Union met in a series of summits aimed at solving the debt burden, Panaritis reaffirmed Greek commitment to the euro, explaining that the crisis extended beyond Greece and needed to be solved by all European nations together.

It is a sentiment that she extended to the pressure group, saying they were all in the same boat. "We just can't have one person missing and assume that the boat is going to go some place," she said.

The message has apparently been understood by at least some of the yacht owners. A spokesman for the Greek finance ministry said: "So far, 100 owners [have] rushed to change the license and ownership status of their yachts, paying the proper amount of tax."